Income exempt from tax

Employment income, benefits and compensation

• Compensation for loss of employment and payments for restrictive covenants
  • full exemption if due to ill health, or
  • RM10,000 for every completed year of service with the same employer / companies in the same group.
• Fees or honorarium (not part of official duties) for validating, moderating or accrediting franchised educational programmes in higher educational institutions.
• Income from employment for women returning to work after a career break of at least two years is exempted up to 12 consecutive months (application to Talent Corporation Malaysia Berhad by 31 December 2027).
• Income from employment on board a ship (defined) used in a business operated by a resident owner of a ship registered under the Merchant Shipping Ordinance 1952.
• Pensions, which is derived from an employment exercised in Malaysia, where the recipient has reached the age of 55, or the compulsory retirement age or retires due to ill health.
• Perquisites (in cash or in kind) for long service (more than ten years of employment with the same employer), past achievement or service excellence, innovation, or productivity award up to an amount or value of RM2,000 per YA.
• Retirement gratuities are fully exempt:
  • where the retirement is due to ill health, or
  • on or after reaching the age of 55 or other compulsory age of retirement,* or
  • upon reaching compulsory retirement age pursuant to an employment contract or collective agreement at the age of 50 but before 55.*
    ^{* Employment has lasted ten years with the same employer or with companies in the same group.}
• Retirement gratuity or termination payment other than gratuities which are fully exempted, up to an amount not exceeding RM1,000 per completed year of service.

Foreign-sourced income 

• Foreign-sourced income of residents received in Malaysia from outside Malaysia up to 31 December 2030 (31 December 2036 for individuals) (subject to conditions) for:

  • individuals in respect of all classes of income except for income from a partnership business in Malaysia  

  • individuals in respect of dividend income in relation to a partnership business in Malaysia
  • companies and limited liability partnerships (LLP) (other than residents carrying on the business of banking, insurance, sea or air transport) in respect of dividend income
  • cooperative societies and trust bodies in respect of dividend income
  • unit trust (which is not a Real Estate Investment Trust or Property Trust Fund listed on Bursa Malaysia) in respect of all classes of income
• Foreign-sourced income of non-resident persons received in Malaysia.

Grant, subsidies and cooperative income

• Grant or subsidy received from the Federal or State Government.

• Green Sustainable and Responsible Investments (SRI) sukuk grant issued in line with the Securities Commission’s (SC) guidelines, including:

  • SRI sukuk and bond that meet the ASEAN Green, Social and Sustainability Bond Standards approved by SC 

  • SRI-Linked Sukuk Grants and bonds issued under the ASEAN Sustainability-Linked Bond Standards approved by SC

  • SRI sukuk and bonds that conform to the ASEAN Taxonomy for Sustainable Finance

For applications received by 31 December 2028.

• Statutory income derived from members’ subscription fees received by trade associations. 

Investment returns

• Dividends paid, credited or distributed by co-operative societies to their members.
• Dividend tax exemption on dividend income that is:
  • from abroad (Refer to the “Foreign-sourced income” section above for further information),
  • from the profits of companies with pioneer status and reinvestment allowances, or profits of shipping companies that is exempted from tax, 
  • from cooperatives or closed-end funds, 
  • received by residents from Labuan entities, and 
  • exempted at shareholder level.
• Income (other than dividends, lending fees, interest earned on collateral and rebates) arising from a loan of securities listed on Bursa Malaysia and the return of the same or equivalent securities, and the corresponding exchange of collateral, in respect of securities borrowing and lending transaction under a Securities Borrowing and Lending Agreement.
• Interest paid / credited to non-resident companies in respect of: 
  • government securities, or
  • sukuk or debentures issued in Malaysian Ringgit (other than convertible loan stock) approved or authorised by, or lodged with, the SC.

The exemption does not apply to interest paid / credited:  

- to a company in the same group, or 

- by a special purpose vehicle (SPV) to a company pursuant to the issuance of asset-backed securities lodged with the SC where the company and the person who establishes the SPV are in the same group 

• Interest or bonus, gains or profits received by a resident individual from deposits placed in licensed institutions. 
• Interest or discount paid / credited to any individual, unit trust and listed closed-end fund in respect of: 
  • bonds or securities issued or guaranteed by the Government,
  • debentures or sukuk (other than convertible loan stock) approved or authorised by, or lodged with, the SC, or
  • Bon Simpanan Malaysia issued by Bank Negara Malaysia (BNM).
• Interest paid / credited to any individual in respect of Merdeka bonds issued by BNM. 
• Interest paid / credited to any person in respect of any savings certificate issued by the government.
• Interest paid / credited to any person in respect sukuk originating from Malaysia (other than convertible loan stock) issued in any currency other than Malaysian Ringgit and approved or authorised by, or lodged with, the SC, or approved by the Labuan Financial Services Authority (Labuan FSA). 

The exemption does not apply to interest paid / credited:

- to a company in the same group,

- to licensed bank, licensed Islamic bank and prescribed development financial institution, or

- by a SPV to a company pursuant to the issuance of asset-backed securities lodged with the SC or approved by the Labuan FSA where the company and the person who establishes the SPV are in the same group 

Profits, prize monies and royalties

• Profit paid, credited or distributed to partners by an LLP. Where the partners are individuals, exemption on profit distributions up to RM100,000 per YA.
• Prize money from sports victories received by individual athletes and teams under the Sports Victory Prize Scheme by the Government.
• Royalties received by an individual resident in Malaysia in respect of:

• Royalties received by non-resident franchisors from registered private higher educational institutions for approved franchised educational programmes.